The role of a startup advisor, or for that matter, any business advisor, is often misunderstood — even by those would-be advisors themselves.
I regularly write startup advice on product, growth, tech, company, and leadership. The posts work when they address a topic that the entrepreneur is dealing with right now. When that doesn’t happen, or when the entrepreneur needs to dive a little deeper, they might reach out with a question. Occasionally, they’ll offer coffee or beer or lunch for a meeting.
But once in a while, they want an ongoing advisor relationship. And about half the time, they have no idea what that means or how to get started. I’m not even talking about just the first-timers — I’m also talking about successful serial entrepreneurs.
Preferably, your advisors are people who have been through building the kind of company you want to build, several times, with both successes and failures.
In this post, I’ll give you an idea of what a startup advisor is and isn’t. I’m not going to quote to you from my startup advisor handbook because there isn’t one. This is just what I’ve learned advising startups over the last 10 years.
What makes a good advisor?
I’ll say the following as a lifelong entrepreneur: If you’re going to take a serious run at building a startup — and it doesn’t matter what kind of startup or industry or your level of experience — you need advisors. They’re not employees, they’re not mentors, they’re not investors, they’re not consultants, and they’re not coaches.
The main ingredient of a good advisor is not education or background or even level of success — it’s straight-up experience. Preferably, your advisors are people who have been through building the kind of company you want to build—several times—with both successes and failures. They’ve been hands-on and the better ones remain hands-on even as they advise you.
Advising is what a lot of us older entrepreneurs do once we get a ton of experience under our belts. I’ve been advising for about 10 years out of a 20-year career, and it definitely blew up once I sold a couple companies. I advise three or four companies at any given time, some formally, some informally.
Advice vs. advisor (or informal vs. formal)
Last year, I wrote 100 advice posts that were read over a million times. I also answered a couple questions a week that came in via my website. I took a couple calls with friends of friends, and I had the occasional coffee with other friends who needed some questions answered.
While all of that involves advice, none of it is formal or informal advising.
Informal advising is mostly with people I already know, who are doing something out of their comfort zone that happens to be well within my comfort zone. We meet every so often and catch up on their business. I don’t review documents, I don’t make introductions, I don’t keep notes, I don’t follow up. At all.
So it’s not even like a business thing. You can call it a favor, but it’s more like being a good friend.
Formal advising is exactly what it sounds like. As a formal startup advisor, I give my time and commitment to do my best to help that startup with their product, growth, tech, company, and leadership.
Advisor vs. mentor
I can be both an advisor and a mentor, and I’m very adamant about drawing a difference between the two. In fact, there have been startups where I’ve switched from one to the other.
As an advisor, I’m working with someone who represents the entire company, usually the CEO (but not always). The important thing is that there are pieces of the team to whom we can assign actions.
Usually, my advice is centered on product, tech, and growth, because that’s the bulk of my background. When we talk about company and leadership, we’re talking about moving the pieces (company) and how to move those pieces responsibly (leadership).
I’m always compensated for being an advisor, either with equity or cash or, usually, both. More on that later.
As a mentor, my focus is still on the company but completely through the lens of the person I’m mentoring. Again, this is usually the CEO or a co-founder, but it doesn’t have to be. For example, I’ve mentored a project manager into a VP of Product and I’m sure she’ll be a CEO at some point.
In mentoring, the focus is on the person as a person, sometimes not even as a businessperson, but as an individual and a leader.
I’m never compensated for mentoring, but recently I’m seeing a rise in demand for coaching, which is kind of paid mentoring. I’m not against that—I’ve just never done it.
Advisor vs. consultant
Consultants are definitely paid and can even be paid to be advisors. In fact, this is probably the blurriest line of them all in terms of how they fit into the business. However, there are some key differences between an advisor and a consultant.
A consultant usually has less of a lasting relationship with the company, both indirectly in terms of the role, and directly in the sense that consultants rarely get equity.
The most important difference is that an advisor is strategic and a consultant is tactical. As an advisor, I don’t do hands-on work for the company. I don’t meet with anyone outside of the company or represent the company to other parties. I don’t report progress or status or keep a timesheet. I don’t have deliverables or milestones.
What’s an advisor board?
I’m going to be a little facetious here. A board of directors is a legally formed entity with a lot of power that wields a ton of control over a company. An advisor board is just a random bunch of smart people.
I don’t mean to belittle the importance of an advisor board — I just want to clarify how you structure an advisor board is nothing like how you create a board of directors. Your advisor board is completely up to you and totally flexible.
Your advisor board doesn’t even have to meet all at once, which is good because if you get the right people to be on your advisor board, getting them all in the same place or on the phone at the same time will be a nightmare. That said, they should be aware of each other and have open lines of communication between them. You’ll want to address more than one of them at a time because it’s good to get more than one take on the same question or issue.
Unlike a consultant, who is committed to a certain task, an advisor is committed to the overall success of your company.
For that reason, I suggest having an advisor board of at least three people, one with experience in the industry, one with experience in the market, and one who is solely focused on growth.
Again, they should come in with tons of experience, they should be action-oriented, and they should always be adding value.
How do you compensate an advisor?
Compensation is up to you and each advisor you work with. Unlike a consultant, who is committed to a certain task and therefore usually bills hourly, an advisor is committed to the overall success of your company, and you’re paying for access to them. Most advisors work on a retainer-type fee along with a small percentage of equity that vests over time just like any other equity grant.
As for the amount of compensation, while there is no direct correlation of hours to dollars, time is usually the basis for the cost of that access.
You should be meeting with your advisor once a month, and I’d recommend twice, no more than an hour per meeting. These are not working sessions, and you’ll be wasting time and money after 60 minutes. There should also be open access for emails and phone calls, within reason.
Equity should be in the range of a senior hire, and while that can vary, I usually see it somewhere between 0.25 and 1.0%. If you’re also paying cash, you can negotiate down to 0.1% to 0.5%. I’m not saying you can’t get an advisor for free, and I’m not saying an advisor would be crazy for asking for 3% equity. Your results will vary.
How to get started
There are agreement templates out there. Much like the SAFE agreement for investors, you can use the FAST agreement for advisors on its own or as a template.
Whatever you decide, just make sure you agree to the role, the rhythm, and the compensation, and get it all in writing up front.
This article was originally published on Medium by Joe Procopio
Joe Procopio is a multi-exit, multi-failure entrepreneur. He is currently the Chief Product Officer at Spiffy, on-demand vehicle care and maintenance startup. In 2015, he sold Automated Insights to Vista Equity Partners. In 2013, he sold ExitEvent to Capitol Broadcasting. Before that, he built Intrepid Media, the first social network for writers. You can read more and sign up for his newsletter at www.joeprocopio.com
